Distribution and Dynamics in a Simple Tax Regime Transition

We examine transitions between excise tax and license fee regimes in the laboratory. The regimes have matched equilibrium Marshallian surplus, but license fees generate more tax revenue. The license fees are large “avoidable costs,” known to hamper competitive equilibrium convergence. With moderately experienced subjects, the prolonged transition to the license fee equilibrium has these features: (1) Prices below equilibrium levels, resulting in firm losses; (2) Marshallian surplus above equilibrium levels; and (3) transitional windfalls for the tax authority. With highly experienced subjects, license fees lead to the instability and lower seller profits and efficiency observed in past avoidable cost markets.Tax Regime Transitions, Avoidable Costs, Double Auctions, Experimental Methods.

Loyalty/Requirement Rebates and the Antitrust Modernization Commission: What is the Appropriate Liability Standard?

I discuss and assess the various standards for establishing liability for loyalty discounts offered under a requirement contract. I find that the standard proposed by the Antitrust Modernization Commission is likely to result in many cases of violation that are not caught. The safe harbor defined by the AMC would permit activity that is in fact anticompetitive. I propose instead a structured rule of reason test that relies on consumers’ surplus comparisons under the loyalty /requirement practice and the but-for world. The proposed standard does not have a safe harbor based on a price/cost comparison because such comparisons do not generally correspond to consumers’ surplus comparisons.bundling, loyalty discounts, requirement contracts, monopolization, antitrust

Rail Privatisation: Financial Implications

INTRODUCTION My aim in this brief paper is not to argue the case for or against privatisation, but rather to comment on the likely financial implications of some of the options. Nevertheless, it does not seem possible to do this without briefly reviewing the advantages and disadvantages that are claimed to flow hm privatisation. I will then consider the existing organisation and financial performance of British Rail. Following this, I will discuss alternative ways of achieving the necessary level of profitability for private investors to be interested in owning and operating the railway system

Cash Incentives and Unhealthy Food Consumption

The costs associated with unhealthy food consumption are not only paid by those suffering from overweight but by all members of society in terms of higher costs for social security systems. With this in mind, we study the effectiveness of a tax, a subsidy and cash incentives in reducing unhealthy food consumption. Using an inter-temporal rational choice model with habit, we calibrate and simulate the effect of those policies to US and UK data.  Our findings suggest that cash incentives may be the most effective policy in reducing unhealthy food consumption yet it can be the most costly one. Taxes are relatively ineffective in reducing unhealthy food consumption. Subsidies have the best balance between effectiveness and monetary benefits to the society.    Habit; Junk Food; Overweight; Public Policy; Rational Addiction

Did English Generators Play Cournot? Capacity Withholding in the Electricity Pool

Electricity generators can raise the price of power by withholding their plant from the market. We discuss two ways in which this could have affected prices in the England and Wales Pool. Withholding low-cost capacity that should be generating will raise energy prices but make the pattern of generation less efficient. This pattern improved significantly after privatisation. Withholding capacity that was not expected to generate would raise the Capacity Payments based on spare capacity. On a multi-year basis, these did not usually exceed �competitive� levels, the cost of keeping stations open. The evidence for large-scale capacity withholding is weak

Optimal user charges and cost recovery for roads in developing countries

The optimal charge for road use is equal to variable costs for road maintenance, together with the costs road users impose on other road users and on the rest of society. One persistent question raised about such charges is what impact they have on cost recovery. The theoretical literature argues that if there are constant returns to scale in road construction and in road use, the optimal user charge will recover the capital costs of the road network and the total expenditures on road maintenance. Empirical estimates for such a system of road user charges in Tunisia similarly suggest that they would generate twice the revenues currently spent on roads. The authors examine these issues from both theoretical and practical perspectives. They conclude that there are substantial economies of scale in both road construction and road use. Also, road maintenancecosts include a number of fixed costs that do not vary with traffic. Moreover, since roads cannot be smoothly adjusted to traffic, marginal costs for the entire road network are significantly lower than average costs in most developing countries, unless capacity is artificially constrained by environmental or other constraints. Under these conditions, optimal user charges result in a substantial financial deficit. The authors also address the question of how this deficit should be financed.Roads&Highways,Economic Theory&Research,Water Supply and Sanitation Finance,Airports and Air Services,Public Sector Economics&Finance

Separation and Volatility of Locational Marginal Prices in Restructured Wholesale Power Markets

This study uses an agent-based test bed ("AMES") to investigate separation and volatility of locational marginal prices (LMPs) in an ISO-managed restructured wholesale power market operating over an AC transmission grid. Particular attention is focused on the dynamic and cross-sectional response of LMPs to systematic changes in demand-bid price sensitivities and supply-offer price cap levels under varied learning specifications for the generation companies. Also explored is the extent to which the supply offers of the marginal (price-determining) generation companies induce correlations among neighboring LMPs. Related work can be accessed at: http://www.econ.iastate.edu/tesfatsi/AMESMarketHome.htmRestructured wholesale power markets; multi-agent learning; demand-bid price sensitivity; AMES Wholesale Power Market Test Bed; agent-based modeling; locational marginal prices (LMPs); LMP separation; LMP volatility; supply-offer price caps

A new biosecurity investment decision framework to promote more efficient biosecurity policy

Australian governments spend millions of dollars each year on pre border, border and post border biosecurity programs. While the resourcing of some of these programs is determined by existing deeds of agreement, others, particularly in relation to environmental and social pests and diseases, fall outside of existing decision frameworks. This paper presents a new biosecurity investment decision framework based on economic principles that aims to produce more objectively determined decisions. It determines whether a role for government exists in relation to a specific problem through the application of market failure tests and then guides the user to the most efficient cost recovery mechanism. The framework is presently under active consideration for use by Industry & Investment NSW and would be suitable for wider application.Biosecurity, investment decision framework, biosecurity policy, market failure test, cost recovery, Environmental Economics and Policy,

Competitive Advocacy Opportunity: Zeroing in U.S. Antidumping Enforcement

Almost all countries have antidumping laws which regulate their imports. The United States and other countries enforce these laws within the terms of the World Trade Organization ("WTO"). There is a difference between U.S. enforcement and the enforcement approach of other countries, however. The United States­but not other countries of which I am aware--now uses 'zeroing' in its determination of whether imports are dumped. The use of 'zeroing' will almost always increase the level of any antidumping duty, and will sometimes create a duty where none would have been imposed, had the methodology not been used. All countries test for dumping by attempting to determine whether imports are being sold at less than 'normal' value. Other countries generally do this by directly comparing the average price at which the product is sold in the country of production with the average price at which the same product are sold in the importing market. If the average of the observed prices in the importing country is lower than the average price in the country of production (the 'normal' value), then the foreign firm is said to be dumping. Using zeroing, however, the U.S. treats import price observations above the 'normal' value as if they occurred at the 'normal' value (rather than at their observed level). Transactions at prices below the normal value are treated at their observed levels. The result of zeroing has been to make the U.S. antidumping laws more restrictive than they might appear, with a positive antidumping margin potentially being found if any single transaction occurs below 'normal' value, even if the average of the import prices in the U.S. is much higher than the 'normal' value. The U.S. practice of zeroing has recently been challenged at least six times before the World Trade Organization (WTO), and has generally been found to be inconsistent with the obligations of the United States under the WTO. Many economists feel that the antidumping laws of the U.S., or of any other country, are misguided. Antidumping regulations seem ill suited to play the most likely roles according to which import restrictions might be beneficial: addressing the possibility of predation or strategic trade by foreign firms, or serving as an 'optimal tariff'. Zeroing, therefore, may increase the cost to the U.S. of import protection without any corresponding benefit. The net impact of the zeroing methodology on the United States (compared to antidumping enforcement without zeroing) depends inter alia on the dispersion of the U.S. prices obtained by foreign exporters under dumping investigation by U.S. authorities. One estimate is that the cost of zeroing to the U.S. could be in the range of $46-112 million/year, with the higher end of the range being more likely.Trade, Dumping, Import, Zeroing, United States, WTO

‘Did English Generators Play Cournot? Capacity Withholding in the Electricity Pool’

Electricity generators can raise the price of power by withholding their plant from the market. We discuss two ways in which this could have affected prices in the England and Wales Pool. Withholding low-cost capacity that should be generating will raise energy prices but make the pattern of generation less efficient. This pattern improved significantly after privatisation. Withholding capacity that was not expected to generate would raise the Capacity Payments based on spare capacity. On a multi-year basis, these did not usually exceed ‘competitive’ levels, the cost of keeping stations open. The evidence for large-scale capacity withholding is weak.Electricity prices, Cournot competition, capacity withholding